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I began my career in the field of business valuation, working with established companies and startups alike. Valuations were always approached from a technical perspective, and it was easy to make fun of founders or executives who had an absurd idea of how much their company was worth.

For my team and I, it always came down to the present value of the company’s future cash flows. Sure, there were always other things to take into consideration, but ultimately the basic formula was pretty simple. If the math didn’t work out, your valuation wasn’t reasonable.

Of course, valuation is more of an art than a science, especially when it comes to startups. The future cash flows of the business can be incredibly difficult to forecast with any accuracy, and, as a result, founders and investors alike have to take a broad view of what constitutes value. Forecasted cash flows play a role, but other factors such early user traction, market reception, and past fundraising can have an outsized impact on the ultimate valuation of a business.

As a founder, you have to balance the needs of various investors, the desire to maintain a degree of control and the realities of the market in which you operate. The temptation to push the value of the company to its limit can be strong. After all, a lofty valuation is a sign of a successful concept and robust investor interest. However, I’ve come to the conclusion that there are often unintended consequences associated with pushing for a high valuation for your business.

I’ve been guilty of walking this line in the past. When we raised our last investment round in 2014, we pushed towards the higher end of our value range. The reasoning was simple: we saw fantastic traction in the market, and our anticipated revenue looked strong. While we were still in a reasonable range for a business of our size, there was room for us to be more conservative.

Don’t limit your exit opportunities

Over the course of 2015, we attracted serious attention from two potential acquirers. Each brought a different perspective to the conversation, and I remain convinced that both would have been a solid fit for BodeTree. Over the course of our discussions, however, the topic of valuation came up time and time again. For these acquirers, historical revenue, not anticipated revenue was the benchmark of value. As a result, their cash flow-based assessment differed from our strategic valuation. This difference in valuation perspectives made things difficult. After all, the investors who joined us in our most recent round wouldn’t accept a sale price that was lower than their investment price.

Ultimately, we were unable to reach a deal in either instance. Would we have been able to if we had accepted a more conservative valuation earlier on? It’s difficult to say, but I suspect it would have helped.